Sri Lanka’s July Inflation Rate Accelerates to a 15-Month High

By Anusha Ondaatjie -
Jul 31, 2012

Sri Lankan inflation accelerated to
15-month high in July as a drought hurt crops and drove up food
costs and a weaker currency made imports costlier.

Consumer prices in the capital, Colombo, increased 9.8
percent from a year earlier after gaining 9.3 percent in June,
the Department of Census and Statistics said on its website
today. The median of eight estimates in a Bloomberg News survey
was 9.4 percent.

Sri Lanka left interest rates unchanged for a third
straight month in July as one of Asia’s fastest inflation rates
limits room to join a stimulus drive stretching from China to
Europe. The island’s current monetary policy is appropriate, the
International Monetary Fund said earlier this month, after
disbursing a $415 million final loan tranche.

“The central bank will likely stick to keeping policy
rates on hold to help inflation cool off,” Sanjeewa Fernando,
an analyst at CT Smith Stockbrokers Pvt. in Colombo, said before
the release. “They’d also want to keep a balance of supporting
growth.”

The rupee slipped 0.1 percent to 131.95 per dollar as of
3:32 p.m. local time, while the Colombo All-Share Index (CSEALL) of
stocks closed up 0.2 percent. The currency is down about 17
percent in the past year.

Sri Lanka moved to a more freely floating exchange rate in
February to curb imports and narrow a trade deficit that’s
pressured currency reserves. Under the policy overhaul, the
island also raised energy prices to reduce inward shipments of
oil and increased borrowing costs in February for the first time
since 2007 to damp credit growth.

A severe drought threatens about 150,000 acres of paddy,
the state-run Daily News said June 27. The monsoon has failed
this year, Energy Minister Champika Ranawaka said July 5.

Central Bank of Sri Lanka Governor Ajith Nivard Cabraal
predicts 7.2 percent economic growth in 2012. Authorities are
gauging the impact of the policy overhaul undertaken this year
to narrow the trade imbalance, before “making a call” on
monetary policy, he said on July 23.